Industry specific standardized software
Vitec is a software company that offers sector specific standardized software to the Nordic market. The company, with operations in Sweden, Norway, Finland and Denmark, is growing in the mature part of the software industry by consolidating vertical software segments.
Growth by acquisitions
Vitec is a software company that focuses on several selected sectors, where the aim is to achieve a market leading position. The company is developing and selling ERP systems and parts of software, which are intended to improve the customers efficiency in internal processes. Customers consists of real estate brokers, construction and real estate companies, banks, insurance companies, energy companies, healthcare companies, education companies, auto part traders and companies operating in the waste disposal industry. Vitec is growing by acquiring healthy companies with mature products in mature markets. Hence, the organic growth is relatively low. Vitec is an industrial player with a long-term view keeping the acquired companies within the group. This requires a meticulous acquisition method and a responsible administration of the companies. The company has a financial goal to achieve an operating margin of 15 per cent.
Vitec is both acquiring companies in current verticals, that leads to greater market shares, along with companies in new branches which increases the risk diversification within the group. A crucial aspect in the decision process is that the acquired company can contribute to increased earnings per share for the business group. Hence, it is important that the companies are profitable and are showing positive cash flows. Vitec is also spending a lot of time and energy on personal meetings with the people behind the companies before deciding to proceed with an acquisition. Vitec believe that it is important to reach an agreement on fundamental values, business models and strategies to be able to have a decentralized leadership in the acquired companies.
Acquisitions could result in that Vitec, within a segment, offers products with somewhat overlapping or even competing products. In the event of that, Vitec will not make any immediate adjustments. Instead, the company will at later convenient occasions evaluate possible development components that support all product lines. This will create a process that future-proofs products and develop a new common product line for all customers in the specific industry.
Market position with high barriers of entry
Each vertical demand for high specialization. This requires large investments for new entrants and often long lead times in product development. At the same time, the vertical markets are relatively small and the switching costs for the customers high, which decreases the possibility for return on investments for new entrants.
There are usually a few smaller players that specializes in sector unique software within each vertical. The broader software generally does not have as cost efficient solutions for the specific individual vertical market. Vitec always strives to reach a market leading position in each vertical that the company is operating within. This foster important scale of economics and enables long-term profitability.
Large and increasing share of recurring revenue
Vitec’s business model is based on a large share of recurring revenue. This provides stable and predictable cash flows that creates the possibility to act long-term. It also makes the company less vulnerable to temporary cutbacks in demand. It has become more common to deliver the software’s functions through internet by cloud-based services. This has resulted in a broader offering by Vitec, which now also includes distribution and storage of data. When the traditional sales of software licenses are replaced by a subscription model (SaaS), both the operating margin and the share of recurring revenue increases. This means low costs of investments and that costs for development, administration, maintenance, upgrades and support is included in the agreement for the customer. In total, a secure complete offering for a known fee.